Depending upon an individual’s income and expenses, tax*-saving can be a high-priority task. Indeed saving income tax is an essential part of financial planning because, without the right tax-planning instruments, you have to pay a huge amount of your earnings to the government as taxes. However, there are plenty of ways to save on taxes*, but taking the right decisions according to your age and stage of life is crucial.

 

Here are some important tax planning tips that will help you save on taxes*.

 

Income Tax Planning Tips Based on Your Age

 

 

In your 20s

The 20s are the right time to invest in your future as you are young and have lesser responsibilities. However, this also might be the time when you have just started earning, and you are not sure about income tax planning in India. Thus, it is better to stick to simple investments at this stage in your life. Here are some ways of income tax planning at this age:

 

• ELSS (Equity Linked Savings Scheme): Market-linked investment instruments and equity-related instruments are some of the ways of saving income tax. The lock-in period in the ELSS is just three years which is ideal for young people. With ELSS, you can avail a tax* deduction of up to ₹1.5 Lakh under Section 80C of the Indian Income Tax* Act.

 

• Life insurance plan: Having a life insurance plan early in life is important. You can opt for a term insurance plan as it is an affordable life insurance option. You can also increase the cover at crucial milestones of your life, such as your marriage. Thus, life insurance planning is crucial at this age.
  
  With life insurance, you can avail of a tax* deduction of up to ₹1.5 Lakh on the premiums that you pay under Section 80C of the Indian Income Tax* Act. Also, the death benefit received under the plan is exempt from taxes* u/s 10(10D).

 

• Health insurance policy: Having a health insurance policy is essential as it provides you with financial help if there is a medical emergency. Health insurance policy premiums tend to increase as you grow older, so buying a health insurance plan when you are young and healthy is the right option. Moreover, a tax* deduction of up to ₹25000 can be availed on the premiums paid towards a health insurance plan u/s 80D.

 

• Public Provident Fund: PPF is also one of the tax*-savings plans that you can invest in. But, you need to remember that the lock-in period in a PFF is 15 years. With PPF, you can avail of a tax* deduction of up to ₹1.5 Lakh u/s 80C of the Indian Income Tax* Act.

 

In your 30s

 

This may be the age when you get married and have kids. Therefore, the responsibilities increase. You may be earning more at this stage and also have some debts on you. Here are some tax-saving plans that will help you:

 

• Home Loans: If you have availed of a home loan, you can get a tax* deduction when you repay the principal amount u/s 80C, as per the terms and conditions. The interest that you pay on the home loan is also eligible for a tax* deduction as per Section 24 of the Indian Income Tax Act 1961.

 

• Retirement Planning: Your 30s are the right age to start  planning for your retirement. You can invest in the National Pension Scheme. With this investment, you can get a tax deduction up to a maximum of ₹1.5 Lakh u/s 80CCD (1). Under Section 80 CCD(2), employers can claim a deduction on the contributions made by them towards the NPS account of the employee. Thus, it is an effective income tax planning tip and also a great way to save for retirement.

 

• Life Insurance: If you have not saved in a life insurance plan in your 20s, now is the right time to do so. If you are looking for a plan to save funds for your child’s higher education, you may opt for a guaranteed¹ returns plan. With a guaranteed¹ return plan, you can get a benefit in the form of a lump sum or regular payouts and also get life insurance coverage under a single plan.
  
  And, when you purchase a life insurance plan, you can make use of the different features to understand the right policy tenure and premium based on the sum assured that you require. For example, when you buy the Tata AIA life insurance policy plans online, you can utilise the online life insurance premium calculator to know the premium that you have to pay for the policy.

 

• Health insurance: With age, health problems also start to arise. Thus, getting a health insurance plan becomes important as it will provide financial security if you encounter a health-related emergency. Health insurance is also a great tax-saving instrument.

 

• Balance of debt and equity funds: If you wish to invest in a combination of life cover and market-linked returns, then ULIPs are the right choice for you. In ULIP plans, you can invest in a fund of your choice and also get a life cover. You can invest in debt and equity funds to ensure that the risk and return on investment are balanced.

 

In your 40s

 

This might be the time when there are a lot of responsibilities on your shoulders. Your children might be growing up, and you need funds for their higher education, marriage, etc. Here are some income tax planning tips for this age:

 

• Child education loan: If you have opted for an education loan for your child, you can avail of deduction u/s 80E of the Indian Income Tax* Act. You can also get a deduction on the interest that you pay on loan for a maximum term of 8 years or till you pay off the loan (whatever of these is earlier).

 

• Increasing the debt component: With age, the risk-taking ability also tends to decrease. Thus, at this stage. If your risk-taking ability has been reduced, you can lower the equity component in your portfolio and increase the debt component. You can also opt for investing in a tax-saver Fixed Deposit with a 5-year lock-in period. This will also enable you to avail of a tax* deduction u/s 80C of the Indian Income Tax* Act.

 

• Retirement planning: Your 40s are the right age to execute planning for your retirement. There are pension schemes like NPS that you can invest in. Or you can opt for pension plans from Tata AIA.

 

• Health insurance: Although it is advisable to get health insurance when you are young and healthy due to the affordable premium rates, it is still essential to have the right policy if you have not bought one until now. Also, you can save taxes with the plan, which is an added benefit.

 

In your 50s

 

Before you start the golden years of your life, which is the retirement age, it is important to pay off any pending loans and start planning for your retirement. Here is what you should know:

 

• Home loans: It is essential that you pay off all the interests on your home loan while you are still working, as that can become difficult with your pension amount.

 

• Child education loans: If your child is working, you can let them take over the interest payments for the child education loan. They can avail of a tax benefit u/s 80E of the Indian Income Tax Act.

 

• Retirement planning: Instead of planning for contributions, this is the time for understanding how withdrawals work. You must know the tax implications related to withdrawals. For example, at the maturity of the NPS, a withdrawal of a 60% lump sum amount from your NPS account is exempt from taxes. 

 

Conclusion

 

Thus, these are some important income tax planning tips that you can use to save income tax at various stages of your life. You can also consult your tax advisor and then make a decision regarding which tax-planning instrument is right for you. Financial planning plays a crucial role in helping you manage your money better, and you must plan and invest in the right manner to get the most out of your earnings.

 

L&C/Advt/2022/Jul/1760